V A VASUMATHI Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) The Commissioner of Income tax (the 1st respondent) by the impugned order (Ext. P3) held that the petitioner was not entitled in computing the capital gains, to deduct the expenditure incurred by him for the purpose of prosecuting in a civil court his claim for enhancement of the compensation. The Commissioner held that such expenditure was not incurred in connection with the transfer of a capital asset.

(2.) S.45 of the Income Tax Act, 1961, defines capital gains as follows:

(3.) The words "in connection with such transfer" mean intrinsically related to the transfer. Only such expenditure as is wholly and exclusively related in an intrinsic manner to the transfer is a deductible expenditure. Counsel for the respondents, Shri Ravindranatha Menon, however, contends that the expenditure, to come within the meaning of S.48 of the I T. Act, should have been incurred prior to the transfer. Money spent in litigation for enhancement of compensation is money spent subsequent to the transfer. Such expenditure, counsel points out, is not incurred in connection with the transfer. He says, for example, brokerage paid or other expenditure incurred prior to the transfer would come within the scope of S.48(1) of the Income tax Act. But if the expenditure was incurred subsequent to the transfer, S.48(1) will have no application. In other words, what is important in terms of S.48(1), according to counsel, is the time at which the expenditure was incurred.